China dominates supply of electronic components for ‘made in India’ products

In fact, in 2023-24, electronic components imports stood at $34.4 billion, making them the fifth largest commodity to be imported to India, after crude, gold, petroleum products, and coal, according to data sourced from the Ministry of Commerce. These components constitute key building blocks for the finished electronics products that are currently being assembled in India – from smartphones to televisions.

Import share from China, Hong Kong

In the financial year 2019-20, electronic components imports from China and Hong Kong stood at over $10 billion, accounting for 62 per cent of the total imports in the category. A year later, in 2020-21, while the value of such imports from the two countries dipped slightly to $9.5 billion, their share of the overall imports remained constant at 62 per cent.

In 2021-22, the value of such imports from China and Hong Kong nearly doubled to $17.7 billion, accounting for more than 68 per cent of the total imports. 2022-23 was a bit of an outlier year, when the share of China and Hong Kong in exporting electronic components to India marginally dipped below 50 per cent for the first time in five years, to 49.7 per cent.

Experts said imports from Hong Kong should be seen as Chinese imports since it is companies from the mainland who run some of their operations in the territory.

The overall picture of India’s reliance on Chinese supply of electronic components becomes clearer when compared to the imports from some other electronics hubs – such as South Korea, Japan, Taiwan and ASEAN countries which include the likes of Vietnam and Malaysia.

In the last five years, barring 2022-23, the quantum of import of electronic components from China alone has outnumbered such imports from South Korea, Japan, Taiwan and all ASEAN countries, combined. Put together, imports from China and Hong Kong have been more than the other countries in each of the last five years. This is despite India having free trade agreements with ASEAN countries, Japan and South Korea.

Growth in domestic electronics assembly

India’s emergence as an electronics assembly hub for smartphones has been notable. Today, almost all phones sold in India have been assembled locally in the country, with companies like Apple also exporting phones that were assembled in India. For instance, India exported smartphones worth around $15 billion in 2023-24, of which iPhones contributed 65 per cent, or about $10 billion – up from $5 billion in the previous year.

But, that growth has meant that India’s reliance on imported electronic components – such as printed circuit boards, integrated circuits, advanced displays, camera modules etc. – has increased given that the country currently lacks any substantial manufacturing base for these crucial components.

“China has built its manufacturing base over the last three-four decades. It is very difficult to rapidly decouple from them given that they are the biggest producers of the components that India would need for its domestic manufacturing processes,” a senior government official said.

Take Apple as an example. While the company’s expansion in India has meant more of its suppliers are looking to set shop in the country, in 2023, as many as 157 Apple contractors manufactured in mainland China, up from 151 the previous year. The number of Indian suppliers, however, remained stagnant at 14.

Govt incentives & future prospects

To remedy the situation, the government is understood to be working on an incentive scheme for electronic components. “The details are currently being worked out, but the overall outlay could be between Rs 30,000 crore – Rs 40,000 crore,” a second government official said requesting anonymity.

Even as India’s factory output for smartphones has risen, leading to a steady rise in exports, local value addition has not increased to a desirable amount. Currently, local value addition in mobile phone assembly is around 15 per cent, while a healthier number would be around 35-40 per cent. As tensions at the border in the last few years have proven to be the nadir of India-China relations, New Delhi as moved towards an economic blockade of sorts – its actions include banning China-based social media companies like TikTok, increasing scrutiny on investments from the mainland, excluding Chinese products from some telecom equipment on account of national security, and visa restrictions on Chinese technicians.

But, India is seemingly warming up to the idea of letting more Chinese entities set up bases in the country in partnership with domestic firms, as part of joint ventures. The Economic Survey 2023-24 said that India should reduce the import of Chinese products while maintaining investments from Beijing.